What a 'Fiscal Cliff' Compromise Could Look Like

Nicole Goodkind

Friday, 30 Nov 2012 | 12:00 PM ETYahoo Finance

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President Obama presented his opening offer for fiscal cliff negotiations on Thursday. The offer calls for $1.6 trillion in tax increases, $50 billion in infrastructure spending, home mortgage refinancing and the power to unilaterally raise the debt ceiling. Republicans have yet to place a counteroffer but they have said they will accept $800 billion in tax increases — a far cry from Obama's proposal.

Many fear that the spread between what Republicans and Democrats want in a fiscal cliff deal is too wide to overcome by the end of this year.

Ben White, chief economic correspondent for Politico, says Americans should not worry about what's going on in Washington.

"We'll get a deal," he tells The Daily Ticker. "We're far apart now but give it a couple of weeks. As we get closer to Christmas people will come to the table and sign off on something. We're not going to go off the cliff."

Obama doesn't expect to get everything that he's asked for, White explains, but the president took an aggressive stance because he wants Democrats to appear that they've put up a tough fight in the fiscal cliff negotiations.

White believes Republicans will also make significant trade-offs but says "Republicans privately acknowledge that tax revenue is very much on the table and they're going to have to give up a lot on that. They'll get a little more on spending cuts but they're not going to get a lot more. They're just not in a very strong position to argue for that."

So what will the fiscal cliff compromise look like? White outlines a possible deal below:

Marginal Tax Rates: raised to 37% or 38% from 35%

New Taxes: $1 trillion in new revenue over 10 years

Spending Cuts: $800 billion (programs TBD)

Rise in retirement age or means-testing: not in this deal

Dividend and Capital Gains Taxes: raised to 20% from 15%

White tells Aaron Task and Henry Blodget that a fiscal cliff deal has not yet been priced into the market.

"We'll probably have a few more freak out declines before the actual deal is signed," he notes. "But when a deal is ultimately made, there will be a serious December rally based on relief that...we're going into next year with an economy that can grow without the fear of all of this austerity."